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Canada threatens trade war with Europe over oil sands vote

Canada says it will take the European Union to the World Trade Organization in protest if the EU labels oil sands as highly polluting.

AMERICAN PETROLEUM INSTITUTE HANDOUT - European Union officials are expected to vote on Thursday (February 23) on a draft law that would label fuel produced from oil sands as more polluting than that from other forms of oil, according to a draft agenda seen by Reuters.

The proposal from the EU to include oil sands in a ranking designed to enable fuel suppliers to identify the most carbon-intensive options has stirred up intense lobbying by Canada.

Home to the world's third-largest oil reserves, almost all of which are in the form of oil sands, also referred to as tar sands and bitumen, Canada has argued the EU is unfairly discriminating against it. Canadian officials have wrote to European commissioners that they may take the matter to the World Trade Organization.

Officials in Alberta, home to some of the largest oil sand deposits, say they are committed to refining the oil sands.

"We are going to responsibly extract and develop that resource. We have a responsibility to market that on behalf of Albertans. There's a net benefit for Canadians, and North Americans as a whole," Alberta legislator Cal Dallas said Tuesday (February 21).

Previous EU meetings have repeatedly failed to get as far as a vote, but the agenda for a fifth meeting of the fuel quality committee schedules a vote on an amendment to the Fuel Quality Directive proposed by the European Commission.

Environmentalists say there is a body of scientific evidence supporting the EU view that oil sands crude is more carbon-intensive than oil from other sources and that a shift to greener forms of energy should avert the need to extract every last drop of oil.

The oil industry has argued the proposed law is unfair and could create an unreasonable administrative burden.

"You look at other jurisdictions doing fuel quality standards - we maintain that this is poor example of a policy that isn't going to reward performance enhancement, or being transparent," Travis Davis of the Canadian Association of Petroleum Producers said.

The issue of oil sands and their production has made headlines in the United States in recent months, where the Obama administration decided to postpone construction of of sections of the Keystone XL pipeline, which would pass through environmentally sensitive land in the Midwestern United States on a route stretching from Alberta to U.S. refineries on the Louisiana Gulf Coast.